Crypto Terms Explained

  • L1 - Layer1 blockchains (ETH, BTC) are the he base systems which takes care of updates,consensus, proof-of-work/stake, mining, token policy and issuance. This is like the main accounting system (the main ledger) of a company (eg. via SAP, Oracle Financials)
  • L2 - A Layer 2 blockchains (Polygon, Lightning) are supplements or extensions of a L1 blockchains which gives them higher throughput, lower cost of transaction. This is like a sub-ledger. For example, outlets of a F&B chain wouldn't send each and every sales transaction to the HQ's main accounting system (it will be slow and laborious). Instead sales data is recorded by the Point-of-Sale, and total sales per outlet posted to HQ on a daily basis.
  • L3 - Layer3 blockchain refers to apps that run on L1 and L2 eg. smart contracts, DeFi.

  • Play-to-Earn. In a penny arcade, you pay (via tokens or coins) to play games: pinball, snooker. How could this possibly be reversed such that when you play a game, you get rewarded with coins or money? Where does the money come from? It is possible, if the game is mahjong or poker - the money comes from fellow players.
  • Wash Trading. Say, you sell apples at $1 per apple, and have a stock of 1,000 apples. How to be an instant millionaire with just an investment of $1,000? You give the $1,000 to a fiend and have him/her buy an apple from you for $1,000. Your apple is now officially valued at $1,000, and your stock of 1,000 apples now has a book value of $1M. When queried why your apple is so highly priced, you tell that it is scarce, unique, much better than other apples etc. The clincher is when a third party comes along and actually pays $1,000 for an apple. Now you have cash flow in addition to high valuation.